Holly Mackay, Boring Money Founder and MD, comments on the effect of Brexit on the stock market, interest rates, savings, currency, bond prices and pensions.
As Britain votes to leave the EU, Boring Money rounds up what this means for consumers when it comes to the pound in their pockets.
Brits will undoubtedly face short-term pain moving forward as markets fall in response. Here is our take on what this means for investments, interest rates, currency, mortgages, savings and pensions.
The stock market
“We are seeing busy markets this morning and the FTSE has plunged. Half a day’s usual trading volume went through in the first 30 minutes. Many retail investors are in fact unable to access the markets, with leading broker Hargreaves Lansdown experiencing hold times of longer than 40 minutes this morning.
Our opinion is that the UK economy, and more importantly, the world economy, will not be influenced as significantly over the long-term as today’s slide suggests, and in fact, other economies, such as China, will continue to dominate the global economy.
My view? Keep calm and carry on.
Selling into the lows is why we have a nation of people who don’t like the stock market; they sell at the worst time and then retreat to cash accounts. But here’s my analogy: If we sold sun-cream, we would not wait until November to sell it. So why would we sell something when we believe the price to be as low as it would go? The answer is simple; we wouldn’t.
Equally, when do we buy stuff? We stock up when John Lewis has a sale, right…?
Well, companies’ core fundamentals have not changed overnight. We are still in the EU today and the process of leaving won’t start to be thrashed through until October. We could say that the stock market is simply “on sale”. If you are saving with a low term intent, then times like this are when you think about buying, not selling.”
“As sterling plummets, goods we buy in from abroad become more expensive and so we expect to see the price of living go up. Normally you would expect that to mean interest rates would rise over the medium-term as this is the Bank of England’s way to take the foot off inflation’s accelerator pedal.
However, given all the uncertainty out there, the slow economic climate and worldwide gloom, we believe that interest rates will remain low for some time yet and may even go down. We would not expect mortgage rates to increase over the coming months as a result of the Brexit vote.
As for house prices, we think that uncertainty and nervous consumer sentiment could dampen the market but this is unchartered territory and it’s hard to predict. The key imbalance between supply and demand remains and so we don’t anticipate any major changes.”
“We should not panic. This is a different scenario to 2007 and 2008 and the Lehman’s collapse. For now, savers have no new reasons to worry. We are still in the EU today and the protection of bank accounts by the British Government – the deposit protection scheme – of up to £75,000 remains in place.
As for interest rates, if the Bank of England needs to shore up confidence, we could see even lower rates. It looks likely to be a very gloomy time for savers.”
“Sterling has fallen dramatically. As at 10.30am this morning, the pound was buying just €1.25. If you are going on holiday this summer it will likely cost you more. Things we import will cost more – but the silver lining is that for those companies which export their goods, they will be more competitive.
The fallout of this will not wash through quickly although we should expect to get less foreign currency for our £ for some time yet.”
“We expect bond prices to fall as investors demand greater returns (yields) from the British bond market to compensate for the greater uncertainty around British markets and GDP.
A UK Government bond is simply an IOU we issue to the UK Government and when we feel less certain about the person we’re lending to, we want more to compensate us for that risk.”
“Most pension savers will have a large percentage of their portfolio allocated to the UK stock market, so we should not be surprised to see the value of our workplace or private pensions fall by 5% – 10% today. This is normal for those in the accumulation, or saving up, phase.
For those in drawdown (i.e. taking an income from the pension after retirement), if you can possibly avoid it and don’t need the income, now is not a good time to sell. Try and draw on any cash reserves you have, rather than selling your investments in such turbulent times.”
Holly Mackay, Founder and Managing Director, Boring Money
Notes to editors:
- Boring Money Founder, Holly Mackay, Holly is available for interview or comment on interest rates, property, currency, ISA, investments and pensions and what Brexit means for the pound in our pockets.
- Follow link for more info on Holly; independent financial expert, commentator, entrepreneur and mum.
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